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Friday, Mar 29, 2024

TURBINES—Capstone Turbine Sales Trailing Pace of Energy Crisis

Amid an energy crisis that has electric utilities scrambling for every spare megawatt of power, Capstone Turbine Corp. figured to clean up with its newfangled electric generators, right? Wrong. Capstone’s lack of an internal sales force and deals with ineffective outside wholesalers have left the fledgling company on the outside of the energy crisis looking in. Chatsworth-based Capstone Turbine has struggled with sales of its refrigerator-sized generators, moving about 800 units last year, and has been unable so far this year to take full advantage of the power crisis. Analysts blame the company’s slow growth on distribution agreements with wholesalers whose sales have been few and far between. “They were focusing on third-party marketing and giving them the right to market the Capstone product,” said Craig Shere, an equity analyst with Standard & Poor in New York. “But these wholesale companies are dropping the ball. This is a really great opportunity and they’re just not taking advantage. That’s why in the last quarter they started this new unit to sell the microturbines directly. It’s the best thing they could have done.” That new unit is Capstone California, a sales subsidiary created in February to exclusively target the Golden State. On March 21, the new unit scored its first coup, a $4 million sale of 141 microturbines to the Los Angeles Department of Water and Power, capable of providing power to 4,000 homes this summer. “It’s a huge step for Los Angeles, not just for Capstone,” said Mike Tingus, president of Capstone California. However, that sale is but a drop in the bucket relative to the $591.3 million flood of red ink Capstone Turbine posted last year due mostly to costs involving development of its state-of-the-art microturbine engine. Company officials expect this small army of salespeople to push its cutting-edge microturbines throughout the state. Capstone Chief Executive Officer Ake Almgren said, “Our new sales organization will further strengthen and grow Capstone.” ‘Really no competition’ The company builds 30- to 60-kilowatt generators fueled by natural gas, using state-of-the-art microturbine technology, similar to a jet plane engine, but with one moving part a turbine that spins while suspended in air. The units retail for $30,000 to $55,000. “They really have no competition,” Shere said. “There is nothing out there like what they have.” But Nick Lenssen, an analyst at Primen, Inc., says the units’ dependence on natural gas could make them a harder sell since gas prices have more than doubled from a year ago. Moreover, Lenssen said, there is some question whether the units will hold up over time. Capstone’s Tingus says the units have a life of about five years, with almost no maintenance. The annual change of air filter and the occasional replacement of an igniter, similar to an automobile starter, are the only required maintenance. Almgren said units can be linked together to power even the biggest of businesses, providing hot or cool air to run a cooling and heating system directly from the microturbines. While efforts to target businesses have been slow, Tingus said the company is attracting new customers throughout the state. “I get between 20 to 40 inquiries a day in my office. That’s from people who need uninterruptible power,” Tingus said. Although he would not reveal how many sales the new subsidiary has made since its inception in February, Tingus said Capstone will likely exceed 2000 sales figures. “What Wall Street is looking for are big sales numbers. They hope we sell between 2,000 and 4,000 units this year. But I don’t want to say how we’ll do,” Tingus said. The company must still meet analysts’ expectations, many of whom now rate Capstone’s stock a “buy.” The NASDAQ stock closed last Friday at 27 7/8. Capstone has the capacity to turn out up to 20,000 microturbines this year so, Tingus said, production is not a big concern. Sales, however, are a priority for the company that has not posted a profit since it began manufacturing in 1998. Capstone’s big sales push has resulted in the recent opening of sales offices in Sacramento, San Diego and Newport Beach, with another office scheduled to open in the Bay Area suburb of Walnut Creek in May. “It’s pretty obvious that California is in a crisis and our product in this particular market makes a lot of sense,” Tingus said. Analysts see the company improving its performance in 2001. “They have a good future,” said Shere. “This energy thing isn’t just happening in California. It’s here in New York and it’s starting to happen in Chicago and other parts of the country, so they’re in a good position.” The units are especially attractive to property owners who can use the main generating unit for condominiums or small businesses and then sell the excess power to the power grid. The units can also be converted to run on backup fuel supplies like propane, diesel or waste gas from oil rigs or landfills. The microturbines can be adapted for use on buses or trucks; some San Diego buses already use Capstone engines. Moreover, the units are clean-burning and meet stringent state air quality requirements. But more importantly, Tingus says the units can run for long periods without shutting down. By law, diesel-powered generators must shut down after 200 hours of operation and can only be restarted with special permits from air quality officials. While current state law bars publicly traded utilities from purchasing microturbines, Tingus says efforts are underway in Sacramento to amend the law in order to ease the power crisis. “That would open a whole new market for us,” Tingus said.

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